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Closing a C Corporation That Owns Shares in Other Corporation

Taxpayer owns 30% of a C Corporation that is closing. Any net cash from corporation is paid to shareholders as a dividend, and the C corp generates a 1099-DIV for that payment. But the C Corporation also owns shares in another C Corporation, and there is no easy way to value those shares because it is a private company. Presumably the stock certificates owned by the closing C Corporation are given to the closing C Corporation's shareholders, but is this a "dividend" or some other form of 1099 income?

For tax purposes, how should this distribution be reported, and what is the correct way to determine value of those certificates?

Reply to
W
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That's probably not the smartest thing to do. A tax professional really needs to be involved in this transaction.

Private companies are valued all the time. A competent CPA (among others) can give an authoritative valuation. It's not simple, but it's not rocket science, either.

The entire amount, cash plus value of the stock, should probably be taken as a redemption. That is to say that, in essence, the shareholders sell the stock for the value they receive. It's a capital gain, and they get to deduct the basis in their stock from what they receive.

If you treat the whole thing as a dividend, there will be no deduction for the shareholders' basis. That would not be very smart tax planning.

Reply to
Stuart Bronstein

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